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Dividends Still Don't Lie: The Truth about Investing in Blue Chip Stocks and Winning in the Stock Market.

Dividends Still Don't Lie: The Truth about Investing in Blue Chip Stocks and Winning in the Stock Market

Written by Kelley Wright


In Dividends Stiff Don't Lie, Kelley Wright shows how investors can use the dividend-yield approach to make their investment decisions. Although dividends and capital gains account for a stock's total return, Wright emphasizes the importance of dividends in determining value in the stock market. He suggests that investors should study dividend yield patterns to recognize value and make their buy and sell decisions accordingly. He then provides detailed examples of how to be successful in the stock market by investing in dividend-paying blue chip stocks.

The book is divided into three parts. Part I consists of five chapters that cover the art of dividend investing. Chapter 1 begins with a general discussion of the reason for investing in stocks, and covers such topics as dividend-value strategy, quality and blue chip stocks, value and blue chip stocks, and value and the stock market. Investors are advised to set their investment objectives before investing in stocks to meet these goals. In general, the objective is to generate cash to meet future needs. The author discusses the importance of good financial planning in meeting this objective. The investor is advised to determine what the needs are before setting future goals and objectives. Once the goals are set, the right investment approach is selected to generate returns that would meet these goals, after allocations to taxes and expenses. Wright advocates the performance-oriented approach, which has three foci--knowledge of what the investor needs to establish achievable goals, investments with the highest probability of meeting those goals and limit on taxes and expenses. This approach is based on the Dividend-Yield Theory that uses a stock's dividend yield as the primary measure of value. Investors can make their buy and sell decisions by looking at dividend-yield patterns in stocks of interest.

Chapter 2 discusses the risks and rewards associated with the major investment classes--stocks, bonds and cash. Bonds provide for a fixed return over a fixed period and are exposed to interest rate fluctuations, default risk and inflation risk. However, stocks do not provide for a fixed return, but have higher potential for capital appreciation to compensate investors for higher risk exposure. Wright advocates stock investment as the best strategy for an investor who desires growth of capital and income, ignores the 'noise' of the market, recognizes and appreciates good value, has the courage to buy at undervalue, has the patience to hold until the value is fully recognized and has the wisdom to sell at overvalue.

Chapter 3 explains the dividend-value strategy. Quality and value are two essential components of the dividend-value strategy.

Chapter 4 discusses six criteria that are used to select the highest quality blue-chip stocks. The criteria include dividend increases, uninterrupted dividends, earnings improvement, quality ranking, market capitalization and institutional ownership. Wright advises investors to restrict their investment to stocks that meet these criteria because they are the first to rise in a bull market and the last to fall in a bear market.

In Chapter 5, he proposes measures of good value that include high dividend yield, low P/E ratio, strong liquidity and leverage ratios, and low price-book value ratio.

The second part of the book consists of three chapters that address cyclical patterns of dividend yields in the stock market. In Chapter 6, Wright discusses how cycles and trends in dividend yields can be used to determine whether the stock (stock market) is overvalued or undervalued. Investors can maximize capital gains, dividend income and growth if they buy undervalued shares and sell overvalued stocks.

In Chapter 7, Wright moves easily through various methods to determine undervalued and overvalued stocks. His approach is a cross between technical analysis and fundamental analysis. Technical analysis involves the charting of dividend yields across time to identify value, whereas fundamental analysis centers on the criteria used to determine quality stocks.

Chapter 8 wraps up this section by focusing on value and cycles in the broad markets such as the Dow Jones Industrial Average (DJIA). Historical patterns in the dividend yields for DJIA are used to illustrate the areas of undervalue and overvalue.

The final part of the book addresses "Winning in the Stock Market," and contains chapters that discuss strategies for successful stock investing, and building and managing dividend-value portfolios. It suggests that portfolios should be built on a diversified selection of blue chip stocks, purchased when they are undervalued and sold when they are overvalued. Wright advises investors to build their portfolios to meet investment goals such as the preservation of capital, income, growth of income, tax advantages and liquidity. Investors should also consider macro and micro factors in selecting stocks for their portfolios. Wright suggests two approaches on how to incorporate macro and micro factors into the dividend yield strategy--the top-down approach and the bottom-up approach. In a top-down approach, the investor considers trends in the macro economy before selecting firms and industries that would benefit from these trends. In the bottom-up approach, the investor analyzes the individual firms before considering trends in the economy. A successful stock investment strategy should incorporate both approaches.

In summary, this book is an interesting read but lacks scholarly depth. It is written mainly for individual investors, financial advisors and analysts who want to understand the investment value of stocks that pay dividends. Using the dividend-value approach, it tells the reader when to buy undervalued blue chip stocks and when to sell. In simple terms, a stock is most attractive when it offers high dividend yield. However, the book fails to provide insights about the role of taxes in the dividend-value approach. For many stock investors, taxes are the largest component of trading costs. The combined federal, state and local tax burden may exceed 50 percent of income. If this is the case, it may make sense for such investors to avoid stocks with high dividend yield.


Strong, R. 2005. Portfolio construction, management, & protection. Thomson: Southwestern.

Reviewed by Aigbe Akhigbe, The University of Akron
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Author:Akhigbe, Aigbe
Publication:American Journal of Business
Article Type:Book review
Date:Sep 22, 2010
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